Merkel signals G20 clash with Obama on financial policy

19th June 2010, Comments 0 comments

German Chancellor Angela Merkel said Saturday spending cutbacks were now needed following the spate of throwing money at the global economic crisis, in a direct counter to US President Barack Obama.

Referring to the G20 summit in Canada next weekend, Merkel said in a videotaped message that "we are going to discuss when to quit the phase of short-term measures and go on to lasting budget consolidation."

Such a move was "urgently necessary, in the view of the Europeans and particularly of Germany," she said.

Obama urged the world's leading economies Friday to avoid scaling back government spending too quickly or risk derailing the global recovery.

"We worked exceptionally hard to restore growth; we cannot falter or lose strength now," Obama said in a letter to G20 leaders ahead of a June 26-27 summit in Toronto.

"Our highest priority in Toronto must be to safeguard and strengthen the recovery," Obama said in the letter dated June 16, but released Friday amid concerns about the pace of the global recovery.

The warning -- a clear shot at European governments reining in budget deficits -- comes after months of worry about the health of the eurozone, fueled by huge public debts in Greece and Spain.

Germany, Europe's biggest economy, is working on a multibillion-euro package of spending cuts designed to bolster government finances and recoup market confidence.

But those moves have led to US concerns that the global recovery -- from the worst slowdown in decades -- might be stopped in its tracks by withdrawing government stimulus.

Obama also expressed concern about "weak private sector demand and continued heavy reliance on exports" by some nations within the G20, in a clear reference to Germany.

Merkel retorted Saturday, "We know of course that the European Union must make its contribution to ensure lasting world economic growth," but added, "We believe we have put the stresses on the right spot."

"Europe will make its point of view clear at the G20," she warned.

She also said that the European Union would "pledge at the G20 to develop a worldwide tax on financial transactions," even though there were doubts about its feasability.

"There will certainly be controversy," she added.

© 2010 AFP

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